Location of Repository

Income distribution, growth and financialization: the Italian case.

By Domenica Tropeano

Abstract

The paper investigates whether the current decline of the Italian economy could be traced back to financialization. In principle financialization could not be so important for an economy in which many firms are not quoted in the stock exchange and for which shareholders' interests should not matter. The author argues that financialization may have deep effects in such an environment by changing the perceived financial norm and the target return on capital. The author draws on a model by Lavoie (1995) extending it to an open economy. She uses this model by looking at the effects of an appreciation, thus replicating the appreciation of the euro in the last years and its possible effects on the Italian economy. The results of such an appreciation would be a fall in the rate of growth, accumulation and in the realized rate of profit. This picture, however, does not fit in well with some stylized facts. In Italy, the rate of growth and the capital accumulation have slowed down while the rate of profit and the profit share have clearly increased. The increase concerns the average profit share and the average profit rate while indeed the profit rate is declining in the manufacturing sectors, but rising in the services sector. At this point a different interpretation is presented, which is no more based on the financialization hypothesis but rather on the increase in the degree of monopoly power in the Italian industrial sectors, given the increase in the mark-up. This process would have been favoured by the privatization process of previously public enterprises. The author shows what might have happened by using a model by Dutt (1995) with two sectors. In this model in the long-run the accumulation of capital is still governed by aggregated utilization and profitability, but the allocation of capital among sectors and their growth depends on the profit rate differential. The profit rate differential might have shifted resources to the service sectors, which would have been favoured by the privatization process. In this case, financialization would be a consequence of the increase in monopolistic competition, which in turn could be responsible for the decline.

OAI identifier:

Suggested articles

Preview

Citations

  1. (2001). Financial systems, corporate control and capital accumulation,
  2. (2000). Is ¯nance-led growth a viable alternative to Fordism? A preliminary analysis",
  3. (1989). International Competition, Income Distribution and Economic Growth."
  4. (2007). strategie di prezzo delle imprese esportatrici italiane,
  5. (2005). Italy's decline:getting the facts right.
  6. (1997). Pro¯t Rate Equalization in the Kalecki-Steindl Model and the \Over-determination" Problem,
  7. Monopoly Power and Uniform Rates of Pro¯t: a Reply to Glick-Campbell and Dumenil-Levy ,
  8. (1992). Some notes for an analysis of accumulation,
  9. (2007). Financialisation" in Kaleckian/ post-Kaleckian models of distribution and growth, Working Paper 7/2007 Macroeconomic Policy Institute Hans Boeckler Foundation.
  10. (2003). Kaleckian E®ective Demand and Sra±an normal prices: towards a reconciliation,
  11. 1995b, The Kaleckian model of growth and distribution and its neo-Ricardian and neo-Marxian critiques,
  12. (1997). Traverse in a two sector Kaleckian model of growth with target return pricing,
  13. (2005). Prezzi, distribuzione e ristagno: una nota,
  14. (2007). Rendite e competitivita', paper presented at the Conference Aissec Parma giugno
  15. (2003). Post-Keynesian price theory,
  16. 2005-06, Shareholder value orientation and the investment-pro¯t puzzle,
  17. (2007). Macroeconomic implications of Financialization, Working Paper University of Massachusetts at Amherst Torrini Roberto 2005a, Quota dei pro¯tti e redditivita' del capitale in Italia,
  18. (2006). Representative agent meets class structure: imperfect competition and the balanced-budget multiplier Cambridge .

To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.